Editor’s Note
This article captures a moment of consumer decision-making amid rising gold prices, illustrating the tension between perceived value and market reality. The personal anecdote serves as a microcosm of broader economic trends affecting luxury purchases.
“It’s too expensive! But since I’m already here…”
On November 22, after much hesitation, Liu Lu (a pseudonym), who was on a business trip to Shenzhen, gritted her teeth and spent over 10,700 yuan to buy a solid gold bracelet weighing about 9.8 grams at a gold shop in the Shuibei market.
If she had come just over 20 days earlier, with the benchmark gold price unchanged, Liu Lu’s bracelet would have been at least 1,500 yuan cheaper. The main change stems from the impact of the new gold value-added tax (VAT) regulations.
On October 29, the Ministry of Finance and the State Taxation Administration jointly issued the “Announcement on Tax Policies Related to Gold” (hereinafter referred to as the “Announcement”), announcing adjustments to the VAT policy for the gold market effective November 1, valid until the end of 2027.
One month after the new policy took effect, after the initial period of confusion, the market has gradually clarified how to price investment gold bars and gold necklaces. In China’s largest gold and jewelry wholesale market—Shenzhen’s Shuibei market—two price quotes have begun to appear: investment gold price and jewelry gold price, both of which are higher than the previous unified Shuibei quote.
As a special asset with both investment and consumption attributes, how will the demand structure for gold be affected?
“Gold jewelry will be a luxury item from now on,” said Deng Ronghua, General Manager of the Zhou Da Jin brand.
He explained that previously there were grey areas in the market. After the new regulations, the market is more standardized, the distinction between investment and consumption purposes is clearer, and jewelry can no longer be invoiced at the price of gold bars. The comprehensive and primary member units of the Shanghai Gold Exchange have greater pricing power for gold bar sales.
The World Gold Council also pointed out that exchange members have a VAT advantage over downstream entities, and their dominant position in the gold investment market may be further strengthened.
Deng Ronghua suggested that consumers with investment needs can focus on gold bars and gold accumulation products from major state-owned banks, or enjoy gold investment dividends through gold ETF products. Consumers with jewelry needs may find it more cost-effective to buy gold bars first and then have them processed into jewelry, although style choices are relatively limited.
The investment attribute of gold and its jewelry consumption attribute are like two ends of a seesaw. Since 2023, the domestic gold price has risen by 133%, with a 56% increase this year alone. The domestic gold price has surged from 614 yuan/gram at the beginning of the year to 958.46 yuan/gram (as of December 1). Even before the implementation of the new gold VAT rules, record-high gold prices had already reshaped the global gold demand structure.
World Gold Council statistics show that global gold demand (including over-the-counter trading) reached 1,313 tons in the third quarter of this year, setting a record for single-quarter gold demand.
Investment demand was the main driving factor. Global gold investment demand (including bars, coins, gold ETFs, and central bank purchases) surged 47% year-on-year to 537 tons in Q3, accounting for 55% of net gold demand for the quarter. In contrast, total jewelry consumption fell 19% year-on-year to 371 tons.
The Chinese market was no exception. In the first three quarters of this year, domestic demand for gold bars and coins has completely surpassed jewelry demand, accounting for nearly 45%, while jewelry demand has fallen to about 35%, and new holdings in gold ETFs accounted for 10%.
Gold prices have hit 50 historical highs this year. Amid recent price consolidation, UBS, the asset management giant that manages wealth for the affluent, raised its gold price forecast for the sixth time this year.
On November 21, UBS Global Wealth Management’s Chief Investment Office (CIO) stated it was raising its mid-2026 gold price target from $4,200 per ounce to $4,500 per ounce, with a potential upside scenario reaching $4,900 per ounce.
Ding Yueli, Head of China Basic Materials Research at UBS Investment Bank, pointed out at a media briefing on November 26 that structural changes have occurred in the gold market since 2022. Gold is no longer seen as a short-term safe-haven tool but increasingly as a long-term strategic asset. Sanctions on the Russian central bank were a trigger for this structural change in gold demand. Rising geopolitical and sanction risks have led official sectors to continuously increase gold reserves, reflected in a doubling of gold purchases by central banks and other sovereign institutions.
Ding Yueli stated that both private and official investors are increasing their gold holdings. During periods of high inflation, falling yields, a weaker US dollar, and geopolitical turmoil, gold serves as a safe-haven tool and a means of asset preservation. The core logic is, first, the trend towards diversification and de-dollarization, and second, gold’s safe-haven attributes remain very important. Therefore, UBS believes the market is still underweight gold overall, and this strategic demand will continue to develop over the next year.
Strong investment demand for gold and continued buying by central banks will remain the main drivers of gold prices.
UBS recommends that for investors with a preference for gold, allocating about 5% of their total assets to gold will help enhance portfolio diversification and provide a buffer against systemic risks.
Ray Dalio, founder of Bridgewater Associates, holds a more radical view. He suggests investors should allocate 10%-15% to gold to effectively hedge and balance risks in other asset portfolios.
Liu Lu said that although buying gold jewelry now is not cost-effective, in the shopping atmosphere of Shuibei, not buying anything felt like a wasted trip.